Brazilian limited liability companies can now be incorporated with a single shareholder
On September 20th, 2019, Brazil enacted Law 13,874 (the “Law”), amending the Civil Code to allow Limitadas, Brazilian limited liability companies, to be incorporated with a single member or shareholder. The Law applies to both new and existing Limitadas and does not prohibit foreign legal entities from being a sole shareholder, subject to certain restrictions.
As a result of the enactment, existing Limitadas that desire to continue operating with a sole shareholder must update their articles of incorporation to reflect the changes—for instance, to eliminate the necessity to hold a shareholder meeting. The conversion to a Sole Shareholder Limitada will not affect the CNPJ, the company’s registration number with the Brazilian Federal Revenue, and should be achievable without adverse Brazilian tax consequences.
The Sole Shareholder Limitada should not be confused with the EIRELI, which is a kind of Individual LLC, as the EIRELI requires a minimum share capital of at least 100 times the value of the current minimum wage and limits the number of companies that may be held by the individual shareholder.
From a general economic perspective, it will be of interest to see how this may drive the way companies invest in Brazil.
Individuals and businesses should evaluate the impact that this new Law could have on their corporate structures from both a tax and overall business perspective. Of particular importance, the enactment of this new Law grants additional flexibility to the entity classification of Limitadas from an international tax standpoint, by allowing Limitadas to be treated as disregarded entities, partnerships, or corporations under US tax law.